Germany needs to CUT Greece NOW

I am tired of reading the torture the Greeks get to endure under the hand of the European Union, lead by the Germans.
Lets start at the beginning, Greece played some creative paper games with help of Goldman Sachs, allowing Greece to enter the European Union when they should not have been allowed.

So here we have a country that under the European union's own rules was not fiscally sound enough to join.
Fast forward that when 2008 hit, the mask is ripped off and we discover Greece is insolvent.  I can excuse 2009-2010 that Europe did not allow Greece to exit.  There was greater problems that may have required Greece to remain, even if it was not best for their citizens.

So Germany....I mean European Union....demands to be fiscally responsible.  A country that is already under water fiscally, with any math at all cannot pay backs its debts for 50+ years if they play their cards perfect.  Anyone can tell they are bankrupt.  Why should people not alive when the debt was created pay?

Ok, lets run with the fantasy, demand Greece take measures and somehow spark economic growth AND export cash out of the country to pay off creditors.
And...surprise...we have a debacle.

Greece unemployment is at 25%, with young at over 50%.  There are supply shortages and unrest.

So Greece holds a vote, the people VOTE to leave the union and take the economic hit of exiting.
Only to have their own politicians cave and continue economic slavery.

NOW Greece has influx of refugees, and combine that  with Germany demanding 86 billion from a bankrupt nation who needs help, not more blood.

At this point democracy is being ignored. the people want out.  The Politicians don't stand up for the people and the people suffer.  I do not believe in violence, but I am at a loss what it will take to free the people of Greece from slavery and let them...and us move on.

Global Currencies Showing Strain

We are starting to see the countries run into currency problems.  I have written for years how this should start between 2013-2017 culminating probably around 2017.  I have been amazed how well the system has been able to hold itself together despite the challenges the global banking system has had.

Greece would have lead the world on this front, but since it is part of the Euro, instead of currency problems they have been rewarded for years on end high unemployment and low wages.  With 45% below poverty line, its a powder keg.

Venezuela is having severe issues, with reports of toilet paper shortages,   The antics of the government are amazing.  Many of the knee jerk reactions of price control and government annexing merchants who refuse to sell goods at a loss is par for the course.  What amazes me more is this tactic never works, so it must be good to do yet again.

Argentina is also having currency problems, with yet again many government antics taking place.  Argentina has had their currency collapse quite a few times in the last 70 years.  You'd think that they would have figured out how to handle it better by now.  Government BANNING imports and IRON FIST for merchants who refuse to sell goods at a loss.   50% internet tax, food price fixing, etc. Good luck with that!

Ukraine has imposed a 6 day waiting period for foreign currency purchases with additional capitol controls instituted.    When I read this what I see is the super rich in that country will continue to drain their wealth out of the country while the common person remains TRAPPED with their devaluing money.  This gives the rich more time to exit with more of their wealth preserved.  When such actions are taken, everyone in that country should apply to exchange money since they have no clue what 6 days will look like.

Brazil and Russia are having their interest rates rise for cost of government bonds and they don't like it.  The solution? Don't hold bond auctions!   While in some aspects this is reasonable, if you don't issue debt over time the debt should become scarce, lowering the premium.  But without me doing any research, I am going to take a wild guess those countries did not unilaterally cut spending to match this action.  Assuming I am correct, they are going to need to auction off bonds to pay people at some point.  Or they can follow USA central bank and simply have their central bank buy their bonds.  In any event, I hardly think world opinion for bond games like america can do will go over well for those currencies.  Rising rates = potential currency run.

Turkey currency the lira has been devaluing quickly under currency fears.  That has in turn lead to yet again, capital flight.  Imagine that, those who can move wealth out to safety, do.  This has sparked a real estate sale in Turkey.  Once these things light, its pretty hard to put out.

Europe Union under the Euro has been and continues to be a challenge.  Spain, Portugal, and Italy have very challenged economies.  Greece's debt is NOT the worst as a percent of GDP in Europe, I put a nice graph at end of this post to show how the debt monster is starting to turn it's head.

China bank HSBC for a short period was instituting capital controls to restrict money flow.  That was quickly overturned once it hit mainstream media to avoid a panic.  This is a tell.  Why did they do this? Because there are issues that people are trying to 'help' by slowing the flow of money.  It doesn't matter they overturned it, there is something not right.

Bottom line people is this is not normal, we are entering the phase I stated in Global Currency Shakedown, Round 4 begins in October that things continue to move along nicely for the next phase of this now 5 1/2 year crisis.  I believe gold will fare well early, but I am starting to realize the end game is we all go to crypto currencies like Bitcoin.  I have started to open accounts and move money as an experiment into Bitcoin and Litecoin and start familiarizing myself with crypto currencies.  I stated back in Jan 2011 in post 'power to the people' that the best thing for the world is to go to crypto currencies.  There are now 83 crypto currencies and growing, there will be winners and losers.  I can't see how Bitcoin loses in the near term so for the short term one of the safer places. I'll do a post on this in more detail later, I highly recommend you listen to this podcast.  Thanks to Mike C for the link!

The Great Unwinding is starting in 2014

In Sept 2008-March 2009 the world decided to double down on all problems and have the world banks and governments go all in to prevent an epic economic collapse.  For now, I'll steer clear of political debate if this should have occurred, lets assume the world was better off to act.

What I can say for certainty is what brought the economic catastrophe was NOT corrected, and this is the greatest sin since March 2009.  The world pissed away about 5 years that could have been used to fix the social economic order, instead we doubled, tripled down.     In hindsight, maybe thats all the world is capable of doing, keeping the same dance a moving until the song must change.

So here we are, lets take a look of signs of the Great Unwinding is starting to happen.

1) Countries currencies are destabilizing, with Argentina and Venezuela leading the way, Turkey looking to follow.
2) Greece after years of oppression is ready for fundamental change its only a matter of demographics as 45% hit below poverty line.
3) Various stock markets are hitting into trouble as Brazil plummets, US market hitting resistance,
4) HSBC, a very large Chinese Bank, is restricting withdrawals, not a sign of financial confidence for what is supposedly a global economic leading country....
5) US is bracing for a fundamental shift in retail, to last for potentially a decade of employment decline.
6) Banks in Germany, France, Spain, and others face a 1 trillion dollar reserve shortfall.
7) Back in 2008 I posted how China and India would squeeze USA of resources, with Oil as a key concern.  China is positioning to secure oil globally while USA uses local, temporary, fraking to cover the shortfall.
8) Global tensions are mounting, with various points of contention that could cause a catalyst for global tensions to flare, right now Japan and China are key contenders for sparking escalation.
9) In general, currency volatility is higher so far in 2014, with it expected to continue....
10) Gold on verge of possible break out, while not a sign of doom, it may be an indicator of economic sentiment change.


So while none of above really proves anything, we are opening 2014 with a heck of a bang!

Greece, Ireland, Portugal, Spain, what is wrong

The Euro is a way for the 'richer' countries to extract value from the poorer countries.
It isn't a normal fiat currency.

Nigel Farage gives a nice speech to describe the situation that has been created.

Global Currency Shakedown, Round 4 about to begin

Back in 2006, with my help of friend John, realized that the US economic structure was based on financial fraud through mortgage securitization.
Bill Clinton signed into law the routing of the glass-stegall act, put into place to separate 'gambling' from bank deposits.  George W routed the FBI department staffing down to a couple of people to investigate the trillion dollar mortgage industry.  In the late years of George W administration the final bubble was being blown, resulting in 2008-2009 financial crash.

In August 2008 I started this blog as an outlet on my rantings to everyone I could meet on the pending economic impact.  Little did I know how close it was.

In the turmoil of then, the natural outcome would have been a deflationary collapse that was stopped by a couple of drastic measures.  First, the government went on a no-holds barred deficit spending campaign to soften the blow to the economy.  Second, mark to market accounting in place since the Great Depression to valuate companies was suspended, as it is to this day.

Some purists would say both of these acts where not appropriate and that capitalist forces should have played out naturally.  I am not one of those people.  Yes, that is an option, and maybe it was the best one that should have been followed.   But I can see why dramatic steps was taken to prevent a global economic collapse, as it was perceived at the time.

What I am against is all of the drastic steps WITHOUT meaningful reform.  That is, 'fixing' of what was broke.  We have chosen to take the worst path, appeasement without follow through on reform.

The market has hit an all time high today.  Did you hear the bell?  My friend John has said there is no bell that goes off warning everyone that the market has hit a multi-year high followed by a market collapse.  Basically, there is no warning.

I am NOT predicting a market collapse per-say.  I am predicting that we are into phase 4 of this mutli-year global economic refactoring.

Phase 1 was the incredible loose regulation and promotion of securitization of trillions of dollars providing the market collapse in 2008-2009.  There are many other factors at work, such as derivatives in the 100's of trillions, but safe to say all the games in phase 1, lead to phase 2, 2008-2009 collapse.

This lead to phase 3, appeasement into 2013.  I realized that appeasement was the route and not cleaning house in 2010, and changed my stance that the market may not collapse per-say, simply be dwarfed by lack of law and raw financial meddling.

We are soon to enter phase 4, appeasement failing.  There is no amount of appeasement that can fix the system, without taking strong steps to fix the heart of the problems.

We have India's Rupee under duress, with India taking draconian steps to curb gold imports.  Mish is calling for a possible Rupee collapse as food inflation hits 18% per year!
We have various countries in Europe, such as Italy, Spain, Greece simply upping the ante on financial gains, buying weeks, months, maybe years, but not decades as they exhaust every  'new legal' option.
We have countries like France, promoting job creation without even bothering to talk to the companies involved in so-called creation plans.  And for what? a few double digit jobs?  That is worth lying about?
Japan is leading the world on the demographic catastrophe that awaits us all in an economic system that at its core foundation is based on ever increasing demand.

We have China continuing to try to transform it's economy into a consumer-global based powerhouse to replace the USA.  In the process, the information about the Chinese economy is safely in the unreliable fantasy zone.  China has HUGE potential, but who can understand their true standings?  At best, it is a hail mary hope that may come to save the world?

Back in march 2011, once I realized the world would NOT fix any core issues, but simply appease, the timeline for 'disaster' shifted from short term (2010-2012) to longer term (2013-2017).

Well, we are here, sad to say.  I don't expect fireworks until 2014, but it could happen next week.
The world dances around the US dollar, and that dance is starting to show it's age.  All is needed is enough people to lose faith in the dance to start the next phase of the crisis, global currency shakedown.

Best I can say is diversify, with a chunk in cash ready to move.  The USD I CANNOT envision any sudden moves down in value for YEARS to come, so it is once again the safest play....until its not! :)

Europe poised to blow in 2013

Granted, I have stated YEARS ago that Europe was going down the tubes.  And yes, I was year(s) too early.  As I have watched over the years Germany and the European union contort, twist, manipulate, and do everything under the sun to maintain the Euro status quote, I keep wondering, is it time yet?

I am amazed at how really stupid the European Union is behaving towards Greece, Spain, and other countries.    The European Union had entry criteria for each country to maintain a certain fiscal responsibility inorder to ensure the Euro wasn't undermined by some countries using the clout of the Euro to get a free ride.

Here we are years later, and its known that many countries used off-balance sheet tactics to hide massive debt, to play games with their balance sheets to appear more compliant than they where.

Once the derivative insurance schemes blew sky-high with cost, the jig was up.  No longer could these countries afford to pay the premium to ensure the risk, to offset their at risk balance sheets.

The right thing to do for their citizens was one of two things.  Either get the Euro onto a path of fiat currency, allowing countries to run debts not tied to a central authority OR to exit the Euro and return to a soveriegn currency.

Neither of those things happened, instead these countries have sold everything that wasn't nailed down, and cut services to the public to reduce spending.  At the same time, jacked up taxes to new highs in hopes of balancing their budgets.  Recently Greece initiated a 'savings tax', basically taking a % of all savings in banks, under certain criteria.

The result?  Business plummeting, unemployment syrocketing, budgets blowing wider, not narrower.  And like a crack addict trying to get his life together just by taking 'one more hit', it just gets worse.

Greece is entering into full implosion mode.  The society is devolving into a barter society, with credit collapsing.  Food stocks are low, estimated two days in super markets.   Bank losses are going parabolic, and cash shortages due to the credit collapse.

The Greek government due to lack of strength to choose what is right for the people, has set themselves up for a violent revolution.  Something that I didn't even think was possible 2 years ago.  Never did I think the leaders would outright ignore the public and drive into private interests, bankrupting a nation.  I knew that was the path they where on, but I thought this game of chicken would have ended a couple of years ago.

Next up is Spain, then Italy, then the rest of the weaker European countries.  If Greece falls into revolution, we will have a Euro Spring, with a contagion that cannot be contained.  If Germany doesn't relinquish its tight demands for fiscal responsibility, deflationary collapse is going to occur.   Once started, it may actually take France down with it.  I do think Germany will not fall, but will go under some severe stress as it tried to hold the line.

I really do hope I wake up tomorrow to hear Euro come to their senses.  Forcing countries down a deflationary collapse and under economic strain to jack up taxes, slash services is not sane.

I do agree that all of that needs to happen - but under local rule.  In this situation its a foreign entity - European Union, forcing fiscal responsibility.  This will force the common Greek to enter a mind set of nationalization, us vs them.  A more prudent path would have been Greece to have its own currency and due to its lack of fiscal constraint their own currency devaluation forcing Greece to reform. 

I really hope that this collapse does not occur, that the nations can see fit to change the construct.  The irony is if Germany holds the line, the Euro should shoot up like a rocket in a deflationary collapse with the dollar plummeting.   As the European nations go under immense strain, the rising euro should give it a one-two punch accelerating the chaos.  I am mildy optimistic that the US fares reasonably well, as the currency war favors the dollar in the near term.  Take a look at the chart at the end of this post.  Pretty amazing eh? Its nice to be the big boy on the block.

Gold should do well, but may get a punch down as asset fire sales occur to raise capital.

I could be wrong on all of this, but its starting to look pretty dicey to me.  I went from looking at this situation that the policy makers would see the problems and realize that the path was destruction.  Now its obvious that there is only one way to change course - by force.

Euro Doomed

The Euro was doomed to fail the instant it was created.
It is not a true fiat currency.  A true fiat currency can be printed, at will, for whatever reason.  Need more cash, just issue more!

The euro requires memebers to try to keep a fiscal order.  If you have high debts, then get it under control.  The US has no such limitation.

So countries like Greece, Spain, Italy get slammed while the savers of Europe, such as Germany scream they must get their lons repaid.

The result is a currency at odds with itself.  If countries like Greece had their own currency, they would print more money - answering to no one - and continue on their merry way.  Their currency would likey trend lower vs German currency.  The local Greeks would be appeased and not rioting.  However, rest assured, german exports would be too expensive for most greeks and not buy german products.

So one side benefit of the Euro is to ensure everyone keeps currency relatively flat to each other.  This DRAMATICALLY favors the sellers and puts the debtors at great disadvantage.

Niral Firage has a nice speech about recent step being done.  Announcing to the world taking money from EVERYONE's savings as a tax, over-night, no wardning.    The message is: dont keep money in banks, keep them in mattresses.

It is stuff like this that WILL create a crisis, and assets keep value, some like gold may explode up.
People still don't get it.  Printing money doesn't cause currency problems, faith in the stability of the finance does.  And what message does it send to announce taking people who have money to pay off some of other people's debt......

European Crisis ahead

I am continually amazed at how incredibly irresponsible people are at their jobs and responsibilities.  The European situation was obvious to me and many other bloggers years ago that they where sitting on a pile of lies.  A pile that makes the USA lies look not that bad.

And here we are, day after day, month after month of the European political drama of denial and patchwork promises to stabilize the union.   What have Europeans gotten for all this effort? Their (and US) tax dollars thrown at bankrupt countries, banks, and other financial institution with NOTHING done to address the root cause, excessive debt, lack of transparency, and mark to fantasy accounting.

Greece's bond rates I have published before soared.  Now its spreading to Italy, Spain, Portugal, Ireland, Belgium and even France!

The leader for being the next Greece fiasco is Portugal, with soon to follow Ireland, Spain, or Italy.
Once one of these countries become the next Greece, I predict we won't have a 3rd, but a 3rd, 4th, 5th, and 6th at the same time.

Prediction: Europe is incapable of doing the right thing, as America has proven it isn't either.  So we must have a European crisis.  And Germany WILL buckle and print the euro just like America.

Next its a coin toss on who goes down next, China, US, or a long list of other countries.
But for those who think the US is untouchable, your just like most Europeans 1 year ago.

Once those countries buckles, then its time for the global currency crisis.  I still think 2013-2018.  It takes quite a while for this to play out.

Greece destabilizing fast, time for European meltdown?

Greece is destabilizing fast.  Greek prime minister George Papandreou replaced the top brass in Army, Navy, and Air Force in a surprise move.   This is following another surprise move by announcing holding a public vote on  EU bailout agreements, as soon as next week.

Government Greek 1 year bonds now pay a return of 205%!!!
If you bought 10,000 euros of Greek government 1 year bonds, in 1 year, the bond will be worth 30,000 Euros!

The current proposed plan is to cut bond debt by 50%.  So if the 10,000 euros turned to 5,000 Euros, in 1 year it would be worth 15,000!  Still a 50% gain for 1 year in bonds.

It should be obvious that this is not risk free.  There is a reason why the rates are so high.
Because the government is destabilizing and you may get ZERO return on your bonds.

And if Greece falls, expect Spain, Portugal, Italy, and Ireland to  be not too far behind.
If Europe enters into a classic deflationary collapse, which is once again it is looking to be, the entire market could get a big flush.

Good luck.  We live in truly historic times.

Europe Celebrates Lawlessness

The fiscal problems in America and Europe have driven government sanctioned fraud globally.  In March 2009, with the global crisis hitting lows, the FASB changed accounting rules to allow banks to mark 'assets' at a valuation they determine, rather than what the asset is worth on the open market.  This was called mark to market accounting, instituted back in the Great Depression.

The idea is that assets have value, equivalent to what others are willing to pay for it.  For example, if I state my house is worth the amount I paid for it, but nobody today will buy for that price, then what people will pay for it today would be the 'mark to market' price.

Since then, banks across the world have enjoyed a great run, and why not? Their assets in accounting terms don't lose value.  Its a great gig.

Europe now proposes that Greece will be able to write down their bond debt by fifty percent AND this will not trigger a default on their debt.   The second part is key here.  If the debt write down is not termed a default, it cannot be an event that triggers legal action when defaults happen.

This to me rings of what I see in society often today, avoiding responsibility by changing the rules.  This will have ramifications that I believe will far outweigh the benefits in the years ahead.
How can anyone enter into financial agreements if accounting rules can change, if definitions like debt default are altered to suit the "other side of the tables" needs?

The answer is, if you act responsible with your money, you can't  You will avoid entering into such agreements in an industry that has a track record of avoiding adhering to the construct the agreement was based upon.

If the Greece plan comes to pass, the event will AVOID triggering the debt default agreements (like insurance) called Credit Default Swaps.  In the near term, this is a fantastic thing.  I have covered before how CDS coverage exceeds gobal GDP by multiple times.  If CDS is not triggered, is greatly reduces the change of a financial depression.  Thats the good news.

The bad news if money is not treated with respect, and does not have a rigid enforcement of law, the other result is currency collapse.

While I am not stating that a currency collapse will happen, I am stating there is no free ride for avoiding responsibility, there will be consequences.  For today, time to celebrate, markets will go up.  Watch gold and gold miners, I may buy more.

My Favorite quote during this event is
"The world is watching Europe and Germany; it is watching whether we are ready and able, in the hour of Europe's most serious crisis since the end of World War II, to take responsibility," Merkel told parliament.

The way I see it, above was a twist of words, below I have fixed it.

"The world is watching Europe and Germany; it is watching whether we are ready and able, in the hour of Europe's most serious crisis since the end of World War II, enforce responsibility," what Merkel should have told parliament.

Greece, Spain, Portugal, Italy, Ireland

Greece, Spain, Portugal, Italy, Ireland are at risk of outright failure, unless Germany backs all their debt.  Time will tell.  Some nice video debate.  Nigel Farage is my European Parliament hero.

Federal 1 year bonds at 150 percent interest rate returns

Well, not US federal bonds.....

Here in America, a US bond gets near zero percent for a 1 year bond.  In Greece, you can buy a Greece 1 year debt bond and get 150% interest rate!

Imagine that, give Greece 1,000 bucks, and in a year, you will get 2,500 bucks back in euros!
So why invest anywhere else but Greece?

For one thing, you must have faith that the European Union will save Greece by paying for their debts.  And so far, Germany is having cold feet to pay for Greeks heavy debt load.  Next up of course will be Spain, Italy, and  eventually Ireland....again.

So if your the optimistic sort, it's a great time to buy Greek government bonds.
For those like myself, I'll take good old US bonds under 1% for now.

BTW, Greece offers us all a glimpse of a potential future for all western countries, if we don't start changing our behavior.....NOW.

Greece Default not likely

Last night I posted on how the market is poised for a potential summary rally. I read this morning Hussman's assessment of Greek default, he places it in the 2012-2013 timeframe.

I encourage you to read the analysis, as John Hussman is a hedgefund manager, and a smart one at that. It is great to have free insight into very significant economic developments. Mr. Hussman's hedge fund is also in precious metals to the tune of 20%.

Assuming Mr. Hussman is correct, and I no reason to think otherwise. there is a very likely possibility of Greece reaching some sort of restructuring deal in the days or weeks ahead. When that comes to pass, I can see pent up demand held back by fear released. This could be the catalyst for the summer rally described by yesterday's post.

Of course, all of this is maybe, probably, and not exacting. The world of investing is probabilities, not guarantees. And my view has shifted from possible pending market collapse to a couple of month rally before the downturn begins in earnest. That downturn will likely reverse with political monkeying for the 2012 election. The money boost the government issues unfortunately will not last 2 years like it did in 2009-2011, we will be lucky to get 1 next time.

For most of my shorts, I put limits in to cover, and hope to get a good price to get out.

Good luck.

Three strikes, time for global economic implosion

The global financial companies are brittle, trying to keep anything and everything from triggering a massive deflationary event. This would not be a problem if the banks and other financial institutions where sitting on solid assets and cash. Instead the financial companies are WORSE off than in 2008, since there has been refusal by governments to address the core problem, excessive leverage and bad loans.

Instead the US government has rolled back (and the world followed) Great Depression era accounting practices such as mark to market accounting to value assets. Instead we now have fantasy asset valuations. Combine that with a Credit Default Swap market that to this day remains unregulated, and the liabilities exceed global GDP by many times.

This concoction has created not a financial system, but rather a debt pretend and extend system, that one day, cannot be extended. Its like a huge Jenga game waiting for a collapse.

And here we are, with the stock markets rallied up over 100% from the 2009 lows, USD near its low, commodities over-valued. But real unemployment is over 17%, companies are not hiring, unemployment benefits are expiring after 2 years of payments.

When the US financial system deflated in September 2008-march 2009, the US was quick to re-inflate through accounting fraud and Federal Reserve Bank money games.

This time, it is looking like the next punch for the financial system will not come from the USA (initially) but it's a race between Europe and China. It doesn't matter which wins, for the other will quickly follow the leader, with the US taking 3rd place in the next collapse.

As such, the USD ironically will once again become the shining gold standard of investments, as the Euro shows to be fatally flawed, and China may experience a full blown revolution. It's obvious to everyone that the Arab nations are not safe havens, and the rest of the countries are either too small, too immature, or too corrupt to matter to the global financial community.

Lets take a look at the world's leading regions to lead the world into the Greatest Depression.

Europe - Greece leads the pack, as it defaults it will trigger a cascading failure among it to other nations, it may be a slow fuse, but it will be lit. To Germany's credit, they are lighting the fuse by taking a stand on the extend and pretend global mantra. Kudos to Germany, the only adult standing in the global financial system. How Ironic that after WW1 Germany's monetary games triggered hyperinflation, leading that country directly into WWII. Here we are Germany by refusing monetary games, may be triggering something akin to WWIII. While hopefully not an all out war, you can be sure that countries relationships will become frosty once the global credit collapse begins in earnest.

China - The grand plan that by awaking the Chinese economy, they can lead the world into an extended growth period is in trouble. I believe Ronald Reagan saw the demographic wall approaching the west, and that is one of the reasons why he opened relations with China. (aside from corporate obscene profits and ability to gut middle class america) But the Chinese demographic is a lure and a curse. For China has over 1 billion people, and if even 10% of the people become violently unhappy, that's over 100 million people to stir revolution. China has shown America how to exceed in extend and pretend games, and has built the worlds largest ponzi scheme, putting america to shame. Now, their country faces on multiple fronts pressures, initially stemming from natural resource prices rising. China is starting to have government protests in urban areas (historically in rural areas). Violent protests, bombings, and uncovering of international fraud is beginning.

USA - While the USA's problems by now are well known, top banks are insolvent but exist with extend and pretend, the newly issued liabilities are not known. If these banks were allowed to go bankrupt, they would have not had the ability to "double down" by taking even RISKIER liabilities. It just goes to show how far a junkie will go to continue a high. Amazingly, now these risks are indirectly the US governments liabilities. So while I place the US in 3rd place for the next implosion, the US does have the ability to race past others during the next downturn to take first place. This will be determined by political choices made with the private debt. For now, it is apparent that the recovery, or lack there of, is now on the downswing. Small businesses outlook dims combines with starlings of resource cost issues. The US economy is going "no were" fast.

Timing WildCard

The Federal Reserve Bank or IMF may announce a new extend and pretend game. It may buy time, but it will only make the eventual downturn worse.

Closing

So there you have it. I may actually already start buying DXD again, since the fuse for the next downturn is lit. It could be tomorrow, or 3 months from now when things start to accelerate. One thing I have learned since 2008, that people will do anything, ANYTHING, and EVERYTHING to avoid doing the right thing. Extend and pretend will always be chosen until that choice is removed by force.

SNL skit on Europe woes

I found this skit pretty funny, covering problems of Ireland, Greece, Spain, Portugal, and the IMF chief caught trying to rape a cleaning girl at the hotel.

Last Saturday had Justin Timberlake, who I find very funny on SNL, couple of skits I liked can be found here and here.

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Deflationary collapses, how quickly we forget!

WAY back in 2008, we had a market collapse followed by an economic collapse. In August of 2008, oil was spiking to 145 a barrel. All systems where go for a global economy on fire.

Then just 4 months later, oil was hitting 40 bucks a barrel. Amazing.

But what caused the collapse? The mass media did an utterly piss poor job explaining it.

Was it the fall of Lehman Brothers? Bear Sterns? Banks?

And how could a few companies failing be responsible for what turned into a global economic collapse? If they where to blame, holly hell, what where government regulators doing since 2001?

I'll ignore the corruption, the outright lies, and other main contributors for getting America to that fragile state.

The issue was simply LEVERAGE! If the US Financial system had no fractional reserve lending policy, it would in effect have no systematic leverage. What would happen is for every dollar a bank lent....a dollar must exist! Then if a dollar was lost, the existing dollar would pay for the bad loan.

In such a world, its hard to get into trouble, since, there is deposits that could pay off bad loans. Further, even when loans go bad, a percent does, not all loans do. So a 10% haircut may be painful, but a company would easily be able to survive based on it's remaining assets.

But thats not the world we live in. The world we live in is 100 deposited dollars can be leveraged to create a total of 457 of deposits, with 357 in loans, and a bank requirement to keep 89 dollars in reserve. (click for Wikipedia details)

So as you can see, if a loan goes bad, the "reserve" can be used quite quickly, leaving no reserve for remaining outstanding loans.

This my friend, is at the heart of a deflationary collapse. Once started, it can snowball into a cascade collapse. Banks and other institutions must dump assets to gain cash to maintain reserves. The system makes for some GREAT bull market runs and makes it easy for private institutions to fund growth. So when things are going good, the marketplace and business world is flush with liquidity (money) to finance business.

But if a tipping point of selling occurs, usually because of bad loans, a cascade failure can happen.

In 2008, the Federal Reserve, to its credit (its rare I complement them), acted quickly to stop the chain reaction to prevent a full all out collapse.

Unfortunately, the lesson learned was, lets do it again, but this time, lets press harder and involve the federal government directly. With governments involved, what could POSSIBLY go wrong?

For an example, lets take a look at Greece. That countries debts and financial situation is at a point of implosion. Greece will likely be the first country to be asked to leave the euro, and it won't be the last. (Spain, Portugal, Ireland) Once any country is asked to leave, it will make it easier to ask for others.

The question is, why is the European Union fighting so hard to prevent this from happening? Do the Germans, French, and other European nations love Greece for its art, food, and vacation spots? Is it they are really nice and like to lend money to others in a time of need?

I am of the belief that the European banking system is about to experience what America already endured, a deflationary collapse due to bad loans, fractional reserve lending.

Don't believe me? Lets see what a former European Central Bank Economist has to say about Greece.

“I’m skeptical about Greece,” said Former ECB Chief Economist Otmar Issing, who joined the ECB a year before the euro’s inception in 1999 and stayed there until 2006. “Greece is not just illiquid, it’s insolvent.”

This statement comes after many of the blogs I read have painfully detailed out that Greece is insolvent, while the European Banking system says otherwise. Mish has a great post of the quote above, and full detail of the pending Greece implosion.

In 2008, America took the hit as directly causing the financial collapse. 2011 will mark the rest of the world causing the next leg down. The European Union, and very likely, China. America's financial markets will get hit, and you can be sure that companies like Goldman Sachs will get caught in the "credit default swap" market losses it was a party to in Europe.

For since 2008, Credit Default Swaps which dwarf global output, ranging in the 55 trillion dollar liability range, with near zero regulation still!

So those looking for hyperinflation, think again, a little country like Greece may be the start of the great unraveling, and that is a deflationary event.

The currency debasement I fear will come AFTER this event. I still think currency debasement with hyperinflation is possible, that years off at earliest 2015-2017.

Syrian government dismantled, Libya mis-information everywhere

Syria

Tens of thousands of Syrians demonstrated in favor of the government amid reports the cabinet and prime minister planned to resign, officials said.

Syria's daily al-Watan newspaper said the Cabinet was expected to resign during its weekly meeting Tuesday, adding the resignations will not affect President Bashar Assad. - As reported by upi.com

What I don't understand is how the Syrian government can be dismantled, but keep the leader? I don't see how true change can occur. My prediction is Syria will have another crisis in years to come.

Libya

I saw flash on the news today that Gaddafi is planning for his own exit......when I search the internet I find nothing about such an action. I see news about other governments PLANNING on what to do once Gaddafi is gone. Perhaps the internet is behind the TV? I doubt it.

It does seem that the rebel forces are not making as much progress as the media is touting. Perhaps the way Gadaffi eventually falls is when he can't pay his mercenary army money.

In any event, Libya won't ever be the same, whether Gaddafi recognizes this or not, its only a matter of time, money, and lives lost.

Once this comes to pass, the world can resume focusing on Portugal, Greece, and Ireland as next to possibly fall.

Death of the Western World Economy

Over the weekend, the European Union announced a 1 trillion dollar package to defend the Euro. That is what drove the markets much higher today. I have only one question. Can ANYONE reading this blog show me an example in history when countries that are running a deficit, after propped up by short term finances, it working out well?

These actions by Europe and US are actions taken by politicians backed by the financial industry trying to take short term answers to problems that are not solvable by creating larger debt. The key to watch is what FUNDAMENTALLY is changing with the MECHANICS of the situation?

The answer is not a thing. Therefore there is only one result, the resume of a depressed economy which will lead either to an market collapse or explosion upwards as a result of currency devaluation.

What I am most amazed with today is how the market was stopped DEAD in it's tracks by the previous bull trend line, but now from the "underside".

If the market cannot close above this line, I am going to flip quite quickly to the final decline has begun, which may last for year(s) to it's final destination. Hopefully the market closes above this line in short order, so I can use it to flip in the future for a downward view.

If the market can move substantially higher, I think it will be the last time. The US already "doubled down" with the Fed and US government trillion(s) of dollar infusion. Now the European Union has done the same. Japan has already kicked all of it's assets in and no longer has the credit it used to.

That only leaves China. They are the wild card here. They could do something nutz like decouple the yuan from the USD. Assuming China keeps status quote as they focus on their own issues, there really is no body left on the planet to help kick the can further.

The next kick the can by the US or the Euro may trigger mass selling of their bonds, and therefore some severe issues in those countries. The bond market can only absorb so much before bonds flip from a saftey play, to another high risk play like Greece.

I haven't changed my positions much, but I am now once again watching the markets closer than I have for months. The market needs to close above the greed bull line for me to get a little more at ease.

From WebSufinMurfs FinancialBlog2

From WebSufinMurfs FinancialBlog2

Market Volatility returns

I got quite a few emails/comments from people on the market volatility. I didn't get too excited about the market actions today. It was a bit surprising to see the market plunge so suddenly.

The markets are fragile, there is not a huge demand to buy stocks at these prices. Anything goes wrong and the floor evaporates causing a freefall. Todays market action was blamed on problems in Greece and computer trading.

Start of LAST year, and re-iterated this year, that we should see countries start to collapse, following Iceland's example. I fully expect as America deepens the debt it has to face, that other smaller countries will be thrown under the bus. In the process the US looks better as can been seen in the US dollar valuation skyrocketing recently. But in the end, the US is in a similar position, it's just that I expect the US to have violence and political turmoil closer to 2012-2013. In my opinion Marshall law in some of the poor areas of the US is all but certain to happen.

For now, who knows where the market goes. I expect actually the markets to rally back starting sometime in the few days or week back towards S&P500 at 1,200. Then the media will pat America on it's back that the US is better off than every one else. Once we start patting ourselves on the back, I am going to get ready to re-enter shorts with the next major fall.

Today could be start of downturn, no one knows, but I actually think the market will hold here and rally.

For now, here are the charts of today's action, and it isn't good. From a charting perspective the market looks like it is falling apart here and now. And it may be. But for now, I'll hold my shorts, hold my gold miners and wait. As I stated so many times in the last few weeks, make sure you have stops in, and cash in the near term is king.

Keep in mind, people are still being fired at a rate of 100K-400K every two weeks, states are insolvent and shutting schools early this year. Countries are failing, such as Greece, Iceland, and eventually Spain, Italy, etc. This is not an ideal time to invest in the market. Not a bad time to buy land, stock in food companies, etc. Be nimble, and read my post on long term investing.

At the end is Peter Schiff making somewhat similar comments as to this entry. I listened to him AFTER I wrote above. Good to see Mr. Schiff and me on the same page. :)

From WebSufinMurfs FinancialBlog2

From WebSufinMurfs FinancialBlog2

From WebSufinMurfs FinancialBlog2